What Does a Title Company Do?

When you buy real estate, you don't want to pay someone for property they don't legally own, and a title company helps ensure that you don't. Before you buy a home, a title company will run a title search to determine whether there are any issues with the seller's ownership of the property. Then, the title company will issue an insurance policy that will pay out if someone else later produces a legal claim of ownership on the property.

A close-up of a SOLD sign near the front door of a brick home.

credit: Christopher Furlong/Getty Images News/Getty Images

Types of Title Insurance

Title insurance companies issue two types of insurance policies. Lender policies are required when the buyer takes out a mortgage and reimburses the bank in case the title is bad, but they don't provide any other benefit to the buyer. Owner's policies provide money for the buyer to defend the title in court and reimburse the buyer if the title ends up being bad.

Assistance With Closing

Title companies may also assist buyers with closing on their home. The title company may hold money in an escrow account, a temporary account used to hold the money for safe-keeping until it is transferred to the seller or used for closing costs, and may help prepare the HUD-1 statement that reflects the various costs of buying the home.